The franc is likely to reverse last month’s rally to weaken to 1.20 against the euro, a level not seen since the Swiss National Bank abandoned a ceiling three years ago, according to Julius Baer Group Ltd. and Canadian Imperial Bank of Commerce. The banks, previously among the most positive forecasters on the franc, now see a decline as the central bank lags its peers in policy tightening.

The franc strengthened 1.2 percent against the euro in January, the most in 19 months, partly on bets that the Swiss National Bank may follow global central banks looking to end years of stimulus. The SNB, however, has poured cold water on such speculation, reiterating it stands ready to intervene on a “highly valued” franc. Bank of America Merrill Lynch says 1.20 is the level the central bank could start to ease off on some of its rhetoric on the currency.

“As the synchronized global recovery emboldens more central banks to begin the process of exit from ultra-accommodative policy, we think the SNB will remain the laggard,” said Kamal Sharma, director of G-10 currency strategy at BofAML. “We continue to believe that the SNB will want to see euro-franc trading meaningfully above 1.20 before taking the direction of travel toward normalization,” he said, seeing that level as “an absolute minimum” by the end of the year.

The franc traded at 1.1595 per euro as of 11:30 a.m. in London on Monday. The currency had looked likely to revisit the 1.20 level when it reached 1.1833 to the euro on Jan. 15, its weakest in three years.

Forecasts Downgraded

Despite the rally, Julius Baer has downgraded its forecasts for the franc to 1.20 within 12 months, from a call in November for 1.12 against the euro in 2018.

“The broad story in Swiss franc weakness is the renewed appetite of Swiss-based investors to recycle their money abroad,” said David Kohl, head of foreign-exchange research at Julius Baer. “With the euro crisis and some cautiousness regarding Europe, private investors in Switzerland had been very reluctant to recycle their money abroad, and this has been changing a bit since last year.”

Once that flow becomes more balanced, the Swiss franc’s “overvaluation will be gone probably even without the help of the Swiss National Bank,” he said. His changed forecast also reflects the SNB moving slower than the ECB and “far less important” political risks than feared in Italy, reducing haven demand for the franc.

Jeremy Stretch, CIBC’s head of Group-of-10 currency strategy, expected the franc to reach 1.15 in the first quarter, one of the most bullish calls. He sees the recent strength as only “temporary” and is now looking to revise his prediction to highlight more weakness, seeing 1.20 reached in 2019. A Bloomberg survey has a median forecast for 1.20 by end-2018.

Stretch doesn’t expect the franc’s rally to prompt aggressive action from the SNB because “the path of least resistance” will be its downtrend coming back into play.

For the most bearish forecaster, the recent surge only delays an inevitable fall. ING Bank NV now sees 1.20 being reached in the second quarter instead of the first, and 1.25 by the end of the year.

“We’ve partly underestimated Swiss franc strength,” said Viraj Patel, a currency strategist at ING. “But we do expect it to revert back to its status as a funding currency in 2018.”

(Updates chart, prices throughout and adds comment in 10th paragraph.)

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee